After learning from an unsuccessful rollout of usage-based pricing a few years back, Time Warner Cable last month announced it would make another foray into broadband caps. Introducing a discount plan that rewards a 5 GB cap with $5 in monthly savings, the operator has once again stirred up conversation regarding the future of unlimited broadband.
With the explosion of real-time entertainment options and the increasing availability of content online, subscribers are becoming dependent on more bandwidth. To meet demand, cable operators are speeding schedules for costly network upgrades.
“There needs to be a return on investment. They need to fund the continued build out and reap the benefits of it. Usage-based billing is the only way to do that without having to increase fees for everyone,” says Rob McCann, president at Canada’s Clearcable Networks.
One rule of thumb is to allow the cap to capture only that small number of consumers at the top of the consumption heap.
“It is a very small percentage of subscribers that outstrip the rest. The size of this group is statistically insignificant, often less than 1 percent. Applying the cap so that it only applies to the outliers is generally a successful way to go,” McCann explains.
Choice For the Taking
This is the approach Suddenlink Communications has taken. During the last five months, the carrier has rolled out usage-based plans to more than half of its residential Internet customers, offering tiered choice and tying the caps to broadband speeds. For instance, less than 10 Mbps equals 150 GB, while the 10 Mbps-to-20 Mbps option offers 250 GB per month.
The operator initially estimated that, on average, its subscribers use 22 GB of data monthly; and that fewer than 1 percent of customers would exceed the allowances.
“That has definitely proved to be the case over the last several months as we’ve rolled out the plan to more communities,” comments Peter Abel, Suddenlink’s senior vice president/Corporate Communications. He adds that, in reality “even fewer” rack up an overage.
“(This) suggests that most of the very few who receive an overage notification are making adjustments—and that’s good news for everyone else,” he continues. “It means more bandwidth for the 99-plus percent whose usage is within or well below the allowances we’ve established.”
While choice is one success factor, transparency is another. According to Dave Caputo, president and CEO of Sandvine, consumers need to be alerted when they are approaching their thresholds. Yet, initially, it can be difficult for consumers to decipher how much bandwidth they need for their pattern of consumption.
Globally, service providers are finding that usage-based billing can be less about numbers and more about applications. For example, in Latin America, it’s common to see low-cost entry tiers for mobile broadband, including only instant messaging or social networking, Caputo says.
“By putting it in terms they understand, (like) all the Facebook they want for $10 (per month), it becomes compelling for the subscriber,” he notes. “Offering customers choices where they can identify themselves will lead to happy customers who are paying less.”
Ultimately, no matter the structure of the usage-based plan, the prices have to make sense. “Consumers have to be happy to pay the amount they are being charged," Caputo concludes.
– Monta Monaco Hernon